Lancashire Holdings Ltd – Q1 2010 Earnings Release

Hamilton, Bermuda – 05 May, 2010 - Lancashire Holdings Limited (“Lancashire” or “the Group”) (Ticker: LHL BH) today announces its financial results for the three month period ended 31 March 2010.

Financial highlights for the first quarter of 2010:

• Fully converted book value per share of $7.38 at 31 March 2010 compared to $7.41 at 31 December 2009. Return on equity, defined as growth in fully converted book value per share adjusted for dividends, of 0.9% (Q1 2009: 2.9%);
• Gross premiums written of $228.0 million (Q1 2009: $142.8 million). Net premiums written of $203.5 million (Q1 2009: $99.2 million);
• Reported loss ratio of 77.9% (Q1 2009: 53.6%) and combined ratio of 99.1% (Q1 2009:
• 81.2%). Accident year loss ratio of 86.8% (Q1 2009: 28.9%);
• Net loss from Chile Maule earthquake of $94.5 million after reinstatement premiums versus pre-announced range of $65.0 to $125.0 million.
• Total investment return of 1.2% (Q1 2009: 1.1%). Annualised total investment return of 5.0% (Q1 2009: 4.6%);
• Net profit after tax of $8.2 million (Q1 2009: $40.7 million), or $0.04 diluted earnings per share (Q1 2009: $0.22);
• Final dividend of $20.8 million (Q1 2009: $nil) or $0.10 per common share; and
• Share repurchases of $12.9 million during the period (Q1 2009: $nil). 

Richard Brindle, Group Chief Executive Officer, commented:

“It has been a challenging start to 2010. We have witnessed a number of significant industry losses, including losses from the major earthquake in Chile in February, and from severe weather around the world. Despite exposure to these events, we are pleased to report both a respectable combined ratio of 99.1% and return on equity of 0.9% for the quarter. This has been the sixteenth out of seventeen quarters since inception that we have delivered a positive return on equity.

Building out our property catastrophe portfolio in the first quarter was the driving factor behind the 60% increase in our gross premiums written when compared with the same period in 2009. The increase in our property catastrophe class will be balanced by a tactical reduction in risk appetite for other classes in the second quarter and the remainder of the year.

As would be expected given our book of business, Lancashire was impacted by the total loss of the Deepwater Horizon drilling unit in April. Total industry losses may end up well over one billion dollars, making this one of the largest energy claims in recent history. Although Lancashire is one of the major underwriters of deep water Gulf of Mexico energy insurance, our net loss for this event is within normal loss expectations.

We previously expressed our view that rates in most classes Lancashire writes would be at their hardest at the start of the year. Despite the succession of catastrophes in 2010 so far, we remain concerned that the losses have only succeeded in slowing down the general decline in prices across many areas of our portfolio, with the exception of specific parts of the energy sector. If the downward trend in pricing continues, we would expect to write less business during the rest of 2010, maintaining our focus on underwriting discipline.”

Neil McConachie, President and Group Chief Financial Officer, commented:

“Since the start of the year, we have continued to repurchase shares both privately and on the public market. Should Lancashire’s share price remain attractive for repurchases, we expect to continue our repurchase programme. At the same time, in the run-up to hurricane season, we will monitor opportunities, balancing share repurchases and underwriting exposure to achieve the best possible return on equity. As we have previously stated, should trading conditions remain the same or, as we anticipate, gradually deteriorate, absent a change in our business plan we would expect to return more capital to shareholders than we generate during 2010.”

Capital

At 31 March 2010, total capital was approximately $1.489 billion, comprising shareholders’ equity of $1.359 billion and $129.3 million of long-term debt. Leverage was 8.7%. Total capital at 31 March 2009 was $1.446 billion and leverage was 8.9%.

Repurchase program

The Group continues to repurchase its own shares by way of on and off market purchases utilising the $162.2 million remaining to be repurchased at 31 March 2010, under the current approved facilities (the “Repurchase Program”). $12.9 million of shares were repurchased during the first quarter of 2010 compared to $nil in the same period in the prior year.

As previously announced, on 1 April 2010 Lancashire agreed to purchase from Crestview Partners, L.P., Crestview Offshore Holdings (Cayman), L.P., Crestview Holdings (TE), L.P., Crestview Partners ERISA, L.P. and Crestview Partners (PF), L.P for cancellation an aggregate of 4,120,879 issued Common Shares of $0.50 par value per share (“Common Shares”) at a price of $7.28 per share, or 479.7 pence per share. The shares were repurchased in an off market transaction at a discount to the market price as at the close of business on 31 March 2010 (based on an exchange rate of £1.0/$1.5175).

The Board proposed, and the shareholders have approved at the Annual General Meeting held on 4 May 2010, a renewal of the Repurchase Program; specifically by authorising Lancashire to make one or more purchases of its issued Common Shares up to an aggregate nominal amount equal to approximately 10% of issued capital with such authority to expire on the conclusion of the 2011 Annual General Meeting or, if earlier, 15 months from 4 May 2010.

Post Q1 2010 Event

Following the total loss of the Deepwater Horizon drilling unit, Lancashire expects to incur a net loss of approximately $25.0 million after reinsurance recoveries. This will be included in the results of the second quarter of 2010.

Dividends

During the first quarter of 2010, the Lancashire Board declared a final dividend for the 2009 financial year of 10.0 cents per common share. The dividend, totaling $20.8 million, was paid on 14 April 2010.

Lancashire will continue to review the appropriate level and composition of capital for the Group with the intention of managing capital to enhance risk-adjusted returns on equity.

Outlook

Lancashire aims to achieve a cross-cycle return of 13% above a risk free rate. This remains unchanged from previous guidance.

Financial information

Further details of our 2010 first quarter results can be obtained from our Financial Supplement. This can be accessed via our website www.lancashiregroup.com.

Analyst and Investor Earnings Conference Call

There will be an analyst and investor conference call on the results at 1:00pm UK time / 8:00 am EST on Wednesday 5 May 2010. The call will be hosted by Richard Brindle, Chief Executive Officer, Neil McConachie, President and Chief Financial Officer and Alex Maloney, Group Chief Underwriting Officer.

The call can be accessed by dialing +44 (0)20 7138 0843 / +1 212 444 0895 with the passcode 9344201. The call can also be accessed via webcast, please go to our website (www.lancashiregroup.com) to access.

A replay facility will be available for two weeks until Wednesday 19 May 2010. The dial in number for the replay facility is +44 (0)20 7111 1244 / + 1 347 366 9565 and the passcode is 9344201#. The replay facility can also be accessed at www.lancashiregroup.com .

For further information please contact:

Investor enquiries and questions can also be directed to info@lancashiregroup.com or by accessing the Group website www.lancashiregroup.com.

About Lancashire

Lancashire, through its UK and Bermuda-based insurance subsidiaries, is a global provider of specialty insurance products. Its insurance subsidiaries carry the Lancashire group rating of A minus (Excellent) from A.M. Best with a stable outlook. Lancashire has capital in excess of $1 billion and its Common Shares trade on the main market of the London Stock Exchange under the ticker symbol LRE. Lancashire is headquartered at Power House, 7 Par-la-Ville Road, Hamilton HM 11, Bermuda. The mailing address is Lancashire Holdings Limited, P.O. Box HM 2358, Hamilton HM HX, Bermuda. For more information on Lancashire, visit the Company's website at www.lancashiregroup.com